Two decades in the making, India and EU reach deal opening up markets

Historic agreement phases out tariffs on over 90% of bilateral trade while shielding India's sensitive agricultural and burgeoning EV sectors

After nearly two decades of negotiations, India and the European Union (EU) on Tuesday announced striking one of the largest bilateral trade deals concluded globally in recent years.

 

The EU has agreed tariff liberalisation on 99.5 per cent of the value of the goods imported from India, covering 96.8 per cent of their tariff lines. India will allow tariff liberalisation on 97 per cent of goods imported from the EU, covering 92.1 per cent of the tariff lines.

 

The free trade agreement (FTA) will over time give the two sides wider access to each other’s market. New Delhi will bring down duties to zero on about 30 per cent of the value of trade on the day the deal enters into force. This will expand in phases to cover 93 per cent of the bilateral trade value over a period of 10 years. On the other hand, the trade bloc will remove tariffs on 90 per cent of Indian exports from day one, with the remainder phased out over seven years.

 

 

Indian government officials said that despite the EU’s average tariff being as low as nearly 4 per cent, exporters in sectors such as marine products, apparels, gems and jewellery, chemicals, leather, plastic and rubber, and base metals will be key gainers as the bloc imposes over 10 per cent import duty on most of these product categories.

 

India’s simple average tariff on a most-favoured-nation basis stands at 16 per cent. However, in the case of certain product categories such as alcohol and automobiles, the import tariffs are over 100 per cent.

 

Duties will be reduced in phases, with tariff quotas in certain sensitive areas such as automobiles, agriculture and steel. The deal excludes areas such as dairy, cereals, poultry, sugar, due sensitivities on both sides.

 

In the case of the “sensitive” automobile sector, New Delhi agreed to a quota-based system of bringing down duties from 110 per cent to 30-35 per cent from year one. Duties will be eventually reduced to 10 per cent. India will limit European car imports in the mass-market segments — cars retailing up to Rs 25 lakh — to protect domestic manufacturers. Higher quota will be allowed in the premium segment, where local presence is thin. No duty cuts will be offered beyond these quotas to encourage manufacturing in India. On the other hand, for every car quota given to the EU, India will receive 2.5 times the access for its exports.

 

Market access for European electric vehicles (EVs) will not open immediately, as New Delhi wants to protect the sunrise industry. Quotas for EVs will kick in after five years, giving enough time for local manufacturers to scale up.

 

“It is a very calibrated approach, where we recognize their (EU’s) strengths and their requirements. They recognise our sensitivity and we try to bring out a balanced package where their industry also gets access to us and are able to bring in their strengths, and we also are able to create a pathway for our industry to grow and maybe access their market also,” a commerce ministry official said.

 

Government officials said that the EU’s carbon border adjustment mechanism (CBAM) regulation — it came into force from January 1 — was one of the toughest issues in the talks as Brussels was unwilling to give any-country specific flexibility or exemption. India, however, has secured a commitment that any CBAM flexibility offered to any other country will also apply to India.

 

Secondly, a technical group will be set up to help Indian companies get their carbon data verified and understand the EU rules better. This could allow India’s future carbon pricing system to be recognised and avoid double taxation.

 

In the services industry, the EU opened up 144 sub-sectors and India 102 sub-sectors to accommodate each other's priorities as much as possible. In addition to that, there are commitments around students' mobility. New Delhi has received some commitments on post-study work visas.

 

There are 21 chapters under deal, covering areas such as technical barriers to trade, intellectual property rights, subsidies, anti-fraud, rules of origin, among others. The chapter on investment liberalisation in non-services has been dropped for now, but both have decided to carry on the negotiations and finalise it within two years of the deal entering into force.

 

The agreement is expected to inject new momentum into India–EU relations amid shifting geopolitical realities — from efforts to diversify supply chains away from China to the search for alternative export markets in the face of increasingly protectionist tariff policies in the United States.

 

Legal scrubbing of the text, according to government officials, is underway, with the aim of completing the process and signing the agreement within the next five to six months. Once signed in early 2027, it will become India’s eighth trade agreement in the past five years.